Higher Long-Term Interest Rates Lifts Dollar and Depresses Stocks and Commodities

September 7, 2021

10-year sovereign debt yields are five basis  points higher in the United States and Great Britain and up four basis points in Germany. The 10-year Japanese JGB yield, by contrast, is unchanged.

The dollar rose 0.4% overnight against the DXY weighted index. The yen (up 0.3%) has outpaced the 0.1% upticks in the euro and Swissie.

The DOW shows a drop of 0.6%. Share prices are down 0.5% in Germany but earlier rose 1.5% in China, 0.9% in Japan, and 0.7% in Hong Kong.

The prices of WTI oil and gold are trading 0.9% and 1.2% lower.

The Reserve Bank of Australia‘s officials cash rate was left unchanged at 0.10% where such has been since a 15-basis point cut last November. Central Bank officials had previously tapered the purchase program of government bonds to A$ 4 billion per week, and that pace will continue through February. A released statement speaks about an interrupted recovery due to the Delta Variant. Negative growth is not expected to endure, but officials concede that the subsequent resumption of positive growth is apt to be slower than assumed previously. Upward pressure on prices remains subdued.

Second quarter GDP growth  in the euro area was revised upward by 0.2 percentage points to 2.2%. Personal consumption accounted for 1.9 percentage points of the rise in GDP. Government and business spending each made modestly positive contributions. Net exports had a neutral effect, and inventories exerted a slight drag. GDP was 14.3% greater than in 2Q 2020. Employment rose 0.7% on quarter and 1.8% year-over-year.

According to the September ZEW survey of investor sentiment toward the German and Euroland economies, expectations continued to settle back. For Germany, the outlook index fell from a 9-month low reading of 40.4 in August to an 18-month low of 26.5 despite a continuing rise in the reading of perceived current conditions. Euroland’s expectations index dropped 11.6 index points to a 17-month low of 31.1, having crested at 84.0 last May.

A streak of three straight months of declining industrial production in Germany ended in July when such recovered 1.0% on month and accelerated 0.3 percentage points to a 5.7% on-year advance.

Swiss unemployment of 2.7% last month was the lowest since the pre-pandemic month of February.

British house price inflation according to the Halifax index slowed to a 5-month low of 7.1% in August from as much as 9.6% three months earlier. Same-store sales according to the British Retail Consortium’s monthly tally posted the weakest year-on-year advance (1.5%) in 17 months during August.

Dutch CPI inflation accelerated a full percentage point in August to a 20-month high of 2.4%. Filipino CPI inflation climbed 0.9 percentage points to 4.9%, most in 32 months.

Norwegian industrial production was flat on month in July and only 1.3% higher than a year earlier. Danish industrial production performed better, rising 2.8% on month and 11.0% compared to the July 2020 level.

In Japan, real household spending was only 0.7% greater in July than a year earlier. That was just a quarter as much as analysts had anticipated. Japan’s customs trade deficit in the first 20 days of August of JPY 538 billion was much wider than that of JPY 216 billion  a year earlier, and the indices of leading and coincident Japanese economic indicators each slipped in July.

China’s trade surplus widened in August to a 7-month high of $58.34 billion. On-year growth of 25.6% in exports and 33.1% in imports both surpassed market expectations. This was the third straight  monthly surplus to exceed $50 billion.

South African real GDP growth of 1.2% last quarter was almost twice as fast as forecast and resulted in a record 19.3% pace of on-year growth that broke a string of declines dating back to the second quarter of last year.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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